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Moody's Investors Service Inc.

Moody's Downgrades N-Star REL CDO VI Ltd.'s Class K Notes and Withdraws Ratings of N-Star REL CDO VIII Ltd.

Strategic Insights

— 1 min read

Moody's Investors Service has taken action on the ratings of two CDOs, N-Star REL CDO VI Ltd. and N-Star REL CDO VIII Ltd., as the credit quality of the underlying commercial real estate (CRE) portfolio has deteriorated. The ratings of the Class K Notes of N-Star REL CDO VI Ltd. have been downgraded, while the ratings of the outstanding notes of N-Star REL CDO VIII Ltd. have been withdrawn due to a lack of sufficient information to support the maintenance of the ratings.

Key Takeaways:

  • The downgrade rating action on the Class K Notes of N-Star REL CDO VI Ltd. reflects the specific risks to the junior notes posed by par loss and credit deterioration observed in the underlying CRE CLO portfolio.
  • The transaction has incurred par losses on Class K, with the current balance being $34.56 million compared to the original par of $13.95 million.
  • The weighted average rating factor (WARF) has deteriorated to 8070, failing the trigger of 5600.
  • Class J Notes were affirmed because their expected losses remain commensurate with their current ratings, after taking into account the CRE CLO's latest portfolio information, its relevant structural features, and its actual over-collateralization and interest coverage levels.
  • The rating action on the Class K Notes is based on the current performance of the transaction, including the presence of cumulative realized losses and the accrual of capitalized interest.
  • The ratings of N-Star REL CDO VIII Ltd. were withdrawn due to insufficient information to support the maintenance of the ratings.

Statistics:

  • Note balance of the transaction, including preferred shares: $104.0 million
  • Defaulted par: $1.2 million
  • Diversity Score: 1
  • Weighted Average Rating Factor (WARF): 8070
  • Weighted Average Spread (WAS): 0.00%
  • Weighted Average Recovery Rate (WARR): 35.00%
  • Weighted Average Life (WAL): N/A

Sources:

  • [Moody's Investors Service, "Rating Action: Moody's affirms and downgrades two tranches of N-Star REL CDO VI Ltd., but withdraws the ratings of N-Star REL CDO VIII Ltd.", June 2023](https://ratings.moodys.com/weblinks/284954)
  • [Moody's Investors Service, "Withdrawal of Credit Ratings Policy", accessed on 01 May 2023](https://ratings.moodys.com/en-publishing.)

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